• NEUTRAL, new DCF-derived MYR3.78 TP from MYR3.56, 1% upside and c.5% FY23F yield. Results exceeded expectations, despite Westports demonstrating a 6% drop in its FY22 TEU growth from lower transhipment volumes. We look forward to the easing of global supply chain disruptions with China’s reopening – this should help lift throughput volumes in FY23. However, we stick to management’s guidance of a low single-digit throughput growth for FY23, maintaining cognisance of a soft global economic outlook and shifts in consumption patterns post pandemic.

• Above expectations. Westports’ 4Q22 earnings of MYR235m (+56.3% QoQ, +22.7% YoY), brought FY22 earnings to MYR700m (-4.8% YoY). The results were above expectations, at 113% of our and consensus’ full-year projections. On a YoY basis, FY22 revenue grew by 3.9% YoY, driven by the conventional segment (+15.7% YoY) – from better break bulk and liquid bulk volumes – and the rental segment (+16.3% YoY), with new tenants at Westports Logistics Centre. FY22 container volumes saw a 3% decline to 10.01m TEUs (from 10.40m TEUs in FY21). FY22 earnings fell by 4.8% YoY, largely impacted by higher fuel costs (+68.9% YoY) and electricity charges (+8.9% YoY) as well as manpower costs (+6.4% YoY). A second interim dividend of 7.46 sen per share was declared for the year.

• Outlook. Management maintains its cautious stance on global inflationary pressures. The shifts in post-pandemic global consumption trends, which now favour services over goods, also brings the risk of further weakening throughput volumes. That said, we maintain our conservative expectations on the group’s container throughput growth in FY23, in line with management’s guidance of a low-single digit growth rate for throughput volumes this year. Note that intra-Asia container throughput makes up 60% of Westports’ total transhipment volumes. While the reopening of China is likely to ease supply chain disruptions, we believe this will be a gradual process. Elsewhere, the award of the concession for the expansion of Westports 2 is still pending approvals from the authorities, and is only expected to come through in mid-FY23.

• Maintain NEUTRAL. Post housekeeping and updating full-year FY22 numbers, our FY23-24F earnings are raised by 6-8%. We choose to remain conservative on volume growth assumptions moving forward, considering the aforementioned factors. Our new TP of MYR3.78 has incorporated a 2% ESG premium, based on its ESG score of 3.1, which is above the country median. Our TP implies a 17x FY23F P/E, which is a little below its 5-year mean – this is justified, given the subdued TEU volume growth.

• Risks to our call include the lower/higher-than-expected TEU volumes, and lower/higher-than-expected operating costs.

Source: RHB Research - 25 Jan 2023